10-QPeriod: Q3 FY2006

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 9, 2006For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported strong third-quarter and nine-month performance for the period ending September 30, 2006. Revenue increased by 20% year-over-year for the quarter and 31% for the nine-month period, driven by a significant rise in average assets under management across all distribution channels. Net income also saw substantial growth, up 16% for the quarter and 27% for the nine months, reflecting effective revenue growth and management of expenses. The company continues its growth strategy through both internal expansion and strategic acquisitions, highlighted by the announced agreement to acquire Chicago Equity Partners, LLC. This expansion, combined with organic growth in its existing affiliates, positions AMG for continued long-term value creation. The company's financial position remains robust, supported by healthy operating cash flow and a strong asset base, despite increasing interest expenses related to recent debt issuances.

Key Highlights

  • 1Revenue increased by 20% to $280.4 million for the third quarter of 2006 compared to the prior year's quarter, and by 31% to $841.6 million for the first nine months.
  • 2Net income grew by 16% to $33.1 million for the third quarter and by 27% to $102.3 million for the first nine months.
  • 3Average assets under management (AUM) increased by 27% to $205.9 billion for the quarter and by 39% to $200.2 billion for the nine months, indicating strong client asset growth.
  • 4The company announced a definitive agreement to acquire a majority equity interest in Chicago Equity Partners, LLC, further expanding its asset management capabilities.
  • 5Operating expenses increased by 16% for the quarter and 29% for the nine months, primarily due to higher compensation costs and amortization related to acquisitions.
  • 6Interest expense increased by 60% for both the quarter and nine-month periods, largely due to the issuance of junior convertible trust preferred securities and increased borrowings under the credit facility.
  • 7Cash Net Income, a non-GAAP measure, showed healthy growth, increasing by 11% for the quarter and 18% for the nine months, reflecting the company's core operating performance before non-cash charges.

Frequently Asked Questions

AMG reported a 20% increase in revenue for the third quarter of 2006, reaching $280.4 million, up from $234.1 million in the same period of 2005. This growth was primarily driven by a 27% increase in average assets under management.

For the first nine months of 2006, AMG's net income was $102.3 million, a 27% increase compared to $80.3 million in the prior year. This growth was supported by a substantial 31% rise in revenue and efficient management of operating expenses, despite an increase in interest expenses.

AMG announced a definitive agreement to acquire a majority equity interest in Chicago Equity Partners, LLC (CEP). CEP manages over $11.4 billion in U.S. equity and fixed income products, and this acquisition is expected to further enhance AMG's offerings and client base.

The company issued $300 million in junior convertible trust preferred securities in April 2006, which contributed to a 60% increase in interest expense. Senior debt also increased, reflecting the company's ongoing use of its senior revolving credit facility to support growth and operations. The company maintains a leverage ratio of 1.5:1 as of September 30, 2006, considering certain convertible securities as equity for leverage ratio calculations.